This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies.
Sonia Cambier, Head of Corporate Insurance and Prevention at the Brussels based Chemicals business, Solvay explains how they have prepared for Brexit. In addition to Solvay’s EU27 operations, it has 10 sites and employs around 1000 people in the UK.
The untangling of the UK’s legal and regulatory system from 45 years of European compliance has thrown up a number of headaches for businesses navigating their way through the Brexit fog.
On first glance, as the chemicals sector has been tightly regulated by the EU’s ‘Registration, Evaluation, Authorisation and Restriction of Chemicals’ (REACH) since 2006, one may expect Brexit to be a particularly complex maze for Belgian chemicals giant, Solvay.
Mme Sonia Cambier, Head of Corporate Insurance and Prevention, took some time to explain how they have responded.
“We set up an internal Brexit task force two years ago, immediately after the Brexit vote” she told us. The aim of this task force was to fully understand the business unit’s risk exposure to Brexit and following this, to create mitigation plans for the worst-case scenario.
In terms of governance, the Brexit task force is a corporate entity supporting all business units. It takes a comprehensive, multidisciplinary approach to assessing risk (HR, Legal, Industrial, Finance, Supply Chain). Mme Cambier assures us “you cannot see risk in a silo; different backgrounds and areas of expertise must come together.”
Key Areas of Exposure
The task force’s analysis of Brexit resulted in the identification of three key areas of exposure. Namely, tariffs, supply chain friction and regulation.
The tariff risk relates to the UK leaving the EU’s customs union and reverting to WTO rules. For Solvay, this could result in tariffs as high as 6.5%, after which a decision needs to be taken on whether to pass on this increased cost to customers or absorb it themselves.
With regards to the supply chain, Solvay estimate 15,000 supply chain operations could grow increasingly complex if customs procedures are reinstated. Some of their specialty products need to be transported at controlled temperatures “these cannot remain on airport tarmac for days” and additionally, Solvay estimate 200 products could be affected by regulatory divergence if the UK left REACH. In the absence of a withdrawal agreement, these products would need to be refiled in the new British regulation.
Supply chain friction and regulatory divergence combined create one central problem. Getting products to customers. To account for this, Solvay have utilised their multidisciplinary taskforce to create a multidisciplinary solution adapted to the idiosyncrasies of each business unit. This includes building plans with customers, reviewing IT systems, assessing transfer pricing, legal reviews of contracts to name but a few, “all that extra work and preparation – that is part of the plan”.
For Solvay it appears the old mantra of ‘fail to prepare, prepare to fail’ rings true. We are assured “there are no systemic risks to us”. This is as Solvay are fully aware of any possible impact of all reasonable outcomes and are prepared to respond to these.
Looking to the future
When asked about the future of the task force model of risk governance, Mme Cambier is confident this framework will become increasingly important, “uncertainty is the new normal”, she told us, political uncertainty is rising and that creates situations with multiple outcomes which can impact different business operations. However, from an aggregated group level perspective, the risk itself is medium-low as a result of the diversity of Solvay’s group level risk profile.
In fact, Solvay is already utilising risk mitigation strategies as part of their Emerging Risks Insurance Program. They are planning to use their captive to mitigate future export control risks to their Business Units such as Brexit. They are confident they can price the risk accurately and use this new insurance program to play an important role in a web of mitigation strategies.
Finally, we put the example of a report in the Financial Times in December which outlined potential cost-saving opportunities for chemical companies operating outside of REACH to Mme Cambier. She replied that as a contributor to the creation of REACH and most importantly, due to REACH’s positive impact on sustainability and compliance, “this is not an option we are considering”. With regards to a potential loss of competitiveness as a result of complying with REACH, when others are not, Mme Cambier is unwavering, “we are very dedicated to sustainability” she states and assures us that any impact on competition would be minor.
For Solvay, a multidisciplinary approach to multidisciplinary solutions has allowed the chemicals giant to effectively mitigate risk whilst learning lessons about the future of risk governance. Additionally, by responding to Brexit uncertainty, Solvay can allow for certainty in its pursuit of other goals as seen in their unhesitant commitment to sustainability.